A deep and resilient debt market will strengthen the entire economy, said Chief Economic Advisor V Anantha Nageswaran on Friday. He called for the funding load being shared between banks and the bond market.
“If India is to grow at 7% for the next two decades in real terms, debt markets must move from the periphery to the center of capital allocation,” Nageswaran said at the Trust Group’s India Debt Capital Market Summit. Equity markets have told and continue to tell the story of India’s aspiration; debt markets will determine whether that aspiration is financed adequately,” he added.
Boosting Liquidity and Broadening Access for Mid-Sized Firms
Flagging the concentration of large and well-rated companies in the bond market for raising funds, the CEA said there is a need to enable mid-sized firms to access markets “systematically and affordably”. There is also a need to increase liquidity in the markets, and investors need to shed the tendency of holding papers till maturity.
Dual-Engine Model
Stating that debt Markets are very important from an Indian perspective, Nageswaran called for a “recalibration” over the next few years where the funding load is shared between banks and debt markets. “Banks continue to lead in financing working capital needs, operating credit and relationship-driven lending, while debt markets should increasingly lead in long-duration financing. A dual-engine financing model is not optional; it’s foundational.”
Banks alone can’t finance investment in energy transition, logistics and connectivity, manufacturing scale-up, healthcare, technology infrastructure and urbanisation over the next 15 years, he said. So, India needs both a strong banking system and strong debt capital markets.
Nageswaran said active market making, greater participation from pensions, provident funds & insurers and diverse instruments, among other measures, will reinforce liquidity.